Log in
Log in
Or log in with
GoogleGoogle
Twitter Twitter
Facebook Facebook
Apple Apple     
Sign up
Or log in with
GoogleGoogle
Twitter Twitter
Facebook Facebook
Apple Apple     

PAYPAL HOLDINGS, INC.

(PYPL)
  Report
Real-time Estimate Cboe BZX  -  02:53 2022-09-26 pm EDT
85.24 USD   -1.99%
09/21Sabadell in talks with Worldline, Nexi and Fiserv for payments deal -sources
RE
09/21Paypal : How PayPal Is Supporting an Equitable Climate Transition
PU
09/21North American Morning Briefing: Caution to -2-
DJ
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisionsFunds 
SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector newsMarketScreener Strategies

PayPal : Q2-22 Earnings Buyside Call Transcript

08/08/2022 | 06:05pm EDT

Second Quarter 2022 Buyside Call | August 3, 2022

C O R P O R A T E P A R T I C I P A N T S

Dan Schulman, President and Chief Executive Officer

Gabrielle Rabinovitch, Senior Vice President, Corporate Finance and Investor Relations

C O N F E R E N C E C A L L H O S T

James Faucette, Morgan Stanley

P R E S E N T A T I O N

James Faucette

Hello, everybody. This is James Faucette, head of payments research at Morgan Stanley. Thanks to all of you for joining us today. We're going to be going to be talking with PayPal CEO, Dan Schulman, and Gabrielle Rabinovitch, head of IR and newly appointed treasurer.

We'll go ahead and kind of kick off, not a lot of other preamble things to do. Dan, I'll start with you. Kind of in our view, the two key parts of the PayPal growth algorithm are underlying e-commerce growth and then PayPal's growth relative to that e-commerce growth. So maybe I'll let you start, and can you touch on how you're thinking about those two pieces right now, and any other high level things you want to make sure we start with?

Dan Schulman

Thanks, James and thanks everyone for joining us this morning. I'd first start out just publicly thanking Gabz for all she's done in the last several months since John left. She has done an incredible job stepping in, we did not lose a beat. Maybe we gained some beats actually and her promotion and additional responsibilities are so well deserved. I just want to thank you and congratulate you as well. I had to start off that way. James, on your question on how we're thinking about eCommerce growth and our performance relative to that, we're trying to, like all of you, parse out a number of different data points and the macroeconomic geopolitical environment around us is not making that any easier.

1

Second Quarter 2022 Buyside Call | August 3, 2022

We were first trying to figure out as you went from a pre pandemic to post pandemic world, how would that shake out? The second we emerged from that, we went into a very difficult macroeconomic and geopolitical environment and we are assuming things don't get better. We are assuming that inflation remains high, that there continues to be a strengthening dollar and FX pressure, that consumer confidence will stay where it is at a low level, that there's an increased chance of recession - maybe even a likely version of that in Europe and we'll see here in the US how that plays out with all the Fed is doing in terms of trying to tamp down inflation. We saw early on because we have a very wide base of customers that low income consumers were pulling back on their spend, were clearly moving from discretionary much more non-discretionary and from goods to services.

We're not assuming that changes as we look forward and we'll talk more about our assumptions as we look into next year and our cost structure. I also believe China with the zero COVID policy and supply chain issues is going to be some time before we see that recover. If you look at all of that and you look at e-commerce rates, initially we were thinking e-commerce growth was going to be about 10% for the year here in the US. Our view is it's lowered from there to maybe around 8% or so. There's been some recent reports out that have looked at the year more in a 5%-7% range for e-commerce growth. I think it might be a little bit better than that. I think it will clearly accelerate in the back half of the year just because you're lapping big stimulus payments in the first half.

There's some unique things to PayPal in that we're also lapping eBay. We've been talking about eBay forever and probably everybody's sick and tired of it, but it's predominantly in our rear view mirror. We've got another 100 basis points of pressure [on revenue growth] this quarter. That dissipates as we go into the fourth quarter. That headwind is versus 600 basis points in Q1 and 400 basis points in Q2. So we pretty consistently are growing faster than the pace of eCommerce and we are taking share, probably increasingly so in this last quarter on both the branded and unbranded side. If you look at eCommerce growth in the US, we think it was basically flat. If you take out travel, eCommerce growth probably was negative. Our branded checkout ex-eBay,ex-P2P,ex-Venmo volumes grew in single digits, so we think we took a good amount of share on branded side. Our unbranded volumes [which are primarily comprised of Braintree] grew in the quarter about 43%, but if you look at our three-year CAGR we're pretty consistent at about 50% growth. We're clearly growing faster than our peers.

We're putting a lot of investment into checkout, into our wallets and into the Braintree platform to accelerate growth. I really do think there is an opportunity for PayPal right now, because many of our competitors are pulling back. Clearly nobody is buying placement anymore for checkout. There is a flight to quality in the market. We are seeing that with merchants and nobody's giving away parts of their company to get placement either. This is a time where we can gain share. We got to execute, go and do it, but the market conditions are right for that.

2

Second Quarter 2022 Buyside Call | August 3, 2022

James Faucette

And that makes a lot of sense to us. Dan, you alluded to and talked a little bit about kind of that investment. And one of the headlines yesterday was obviously the expense savings and your plan to save around $900 million in cost this year. And when that's annualized and we add in some other initiatives, that's maybe $1.3 billion next year. But you're going to be reinvesting that and it seemed like the indication is that we'd still have like, kind of a gradual overall expansion of margins. Can you talk a little bit about where the cost savings are coming from? How did you identify those and maybe particularly for this audience, we've gotten a lot of questions on what portion of the expense savings were already worked into the outlook and maybe you can clarify really what we should take as incremental on the cost savings perspective?

Dan Schulman

I'll start and then Gabz will no doubt fill in. The first thing I want to say is make no mistake, we are investing in the business. We intend to improve our competitive positioning and our value proposition, and we intend to continue to take share and that will take investment. We have narrowed our focus in terms of our investment to checkout, digital wallets and Braintree, where we have high conviction in the impact of those investments in terms of what they will do vis-a-vis competitors and how our merchants and consumers will respond to that. That's number one. [These initiatives have all been underway for some time.] That is really important.

Second on the costs, we're going to be aggressive in reducing our cost structure and being as efficient as possible. Our scale allows for us to do that now. A big part of those cost cuts is our ability to leverage the $1.4 trillion of TPV that we expect to flow through our platform this year. The amount of leverage we have now to reduce unit costs and our transaction expenses is pretty significant. That's already happened. We're not talking about are we going to go do that. We've done that. We've signed all of those deals and that will flow through our expenses this year and next year and the year after, and continue on, so that's a big part of this, leveraging our scale.

On the other side of this, we grew our [non-GAAP] operating expenses quite a bit over the last couple of years. We've put on a lot of headcount. We don't need incremental headcount. Other companies are laying off headcount. We are down from the beginning of the year to where we are now on headcount, both on full-time employees as well as contingent workers which are what we use in our servicing center because our product's gotten better, we have less calls coming in. We need less people therefore, and we can be a lot more efficient and a lot more productive. That $900 million [of cost savings] is all in this year. The $1.3 billion [of cost savings], we said at least that and we are sharpening our pencils to look for more next year. I do want to say this, the $1.3 billion [of cost savings expected in FY'23] and our keen focus on driving out even more costs is reflective of our plan for a difficult economic environment over the rest of this year and into next year as well. I think this is the prudent way of doing things. I think we need to have a cost structure that reflects that and at the same time allows us to expand our operating margin and enables us to grow our [non-GAAP] earnings per share double digits, mid-teens [over time,

3

Second Quarter 2022 Buyside Call | August 3, 2022

in different operating environments]. No matter what, we want to put in place the cost structure to make sure that that happens.

Things could get better, and that would be great, and we could have just a super year next year if all of that came in. But we need to plan for a recessionary environment, a cost structure that reflects that, make sure we're rebalancing our investments in these high impact, high conviction growth areas and just do that in a responsible way. As we think about our cost structure we are planning for a difficult environment next year and making sure that we're ready to not only address that, have the right resources in place, the right investments in place, but make sure that we have the right return to our shareholders as well. We can do all those things as we do that. Anything to that?

Gabrielle Rabinovitch

No, I don't have anything. But James, if there are line item questions or details around certain areas of the cost savings, please, maybe this would be a good time to spend more time there before we move on to another topic.

James Faucette

Sure, Gabrielle, and that's actually what I wanted to do. I actually wanted to ask specifically yesterday you outlined that transaction expense would be roughly half the cost savings, but how should we think about the trajectory of that expense rate relative to what we saw in Q2? Should we expect even though what you're paying on a like for like basis those costs are coming down, the mix could impact that? How should we be modeling that out so we're not taken by surprise there?

Gabrielle Rabinovitch

Yeah, sure. For the full year I'd expect it [Transaction Expense] to come in a little lower than the 90 basis points in the second quarter, and that's in part a result of what Dan talked about in terms of benefits we're getting from scale with our network partners. That also is in consideration of the continued strong volume mix that we're seeing from Braintree. Those two pieces have a balancing out effect to a certain extent and should take [Transaction Expense] down a little lower [for FY'22 vs. Q2'22]. I'd expect to see us actualize the year, maybe a point or two lower than where we were in the second quarter [Transaction Expense was 90bps as a % of TPV in Q2'22]. What we're doing with the networks and benefiting from our scale really does help offset some of the inflation that we see as a result of Braintree mix. So we're balancing that out. As we think about the trajectory into next year a lot of that is based upon where we see volume growth coming from. But again, we'd expect to kind of see [Transaction Expense] stabilize in that high-eighties [basis point] range for the full year. And that's what I would expect to see at least over the next few quarters.

James Faucette

4

Second Quarter 2022 Buyside Call | August 3, 2022

Got it. And what would you expect in terms of any mix changes or other things that we should be aware of that can move that around? Or do you feel like that that component is also stabilizing?

Gabrielle Rabinovitch

We're seeing some stabilization. What we're contemplating in the back half of the year is, Dan mentioned we're expecting to continue to see sluggish e-Commerce growth and the consumer broadly impacted by some of the trends we're seeing in the [macro]environment. That is contemplated by what we're thinking about from a TE [Transaction Expense] rate standpoint, in terms of the mix of volume relative to other things. I think it's probably too early to call 2023 right now. Obviously, we're still working on how we think about the year playing out. We'll have to see how we finish up 2022 both in terms of back to school and holiday, as well as just the overall macro environment. But I think given the different benefits we get from scale, as well as what we see from a volume mix on Braintree, that high eighties [basis points Transaction Expense] probably make sense to us.

Dan Schulman

Just one other thing I'd add to that, James. If we look at the shape of our revenue growth coming right now, as we said yesterday, the quarter went 7%, 10%, 12% in terms of [monthly revenue growth] FXN. July [preliminary FXN revenue growth] was 14% plus. But one of the encouraging things we saw, not unsurprisingly, we kind of expected, but it's encouraging to see it anyway, is that the PayPal branded checkout piece is now beginning to grow quite positively. We'll see how that continues as we go through the year, but we're encouraged by what we're seeing in terms of growth rates. Obviously Braintree is also doing well and we are figuring that into our mix, but the branded checkout is beginning to pick up as well.

James Faucette

Got it. And then I guess as a follow-up question on the other parts of expenses, it sounded like you were maybe going to find ways that you can improve the efficiencies of things like sales and marketing, et cetera. But a key question is like, where does that savings come from? And if you're looking to take share, how can you do both, right? Like, find more efficiencies or even pull back on sales and marketing versus take share.

Dan Schulman

It's a little like saying you want to run a four minute mile, should you do it at 180 pounds or 165? You know what I mean? You should just be in better shape around these things. For us, it's about reallocation. If you think about the shift in our strategy which is all about focusing on engagement retention, increasing ARPA [Average Revenue Per Active], driving transactions for actives, monthly active users, that kind of thing. A lot of our marketing dollars can be used way more effectively or are not needed to drive the engagement that we're going to get out of our products, so we can be much more efficient in our marketing. Clearly there's no question about it. If we look at the new cohort of June

5

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

PayPal Holdings Inc. published this content on 08 August 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 08 August 2022 22:04:00 UTC.


© Publicnow 2022
All news about PAYPAL HOLDINGS, INC.
09/21Sabadell in talks with Worldline, Nexi and Fiserv for payments deal -sources
RE
09/21Paypal : How PayPal Is Supporting an Equitable Climate Transition
PU
09/21North American Morning Briefing: Caution to -2-
DJ
09/21New Zealand Visa For Spanish, Netherlands, Swedish and Italian Citizens
AQ
09/20Sector Update: Financial Stocks Fading Ahead of Tuesday Close
MT
09/20PayPal Shares Fall After Susquehanna Downgrade
MT
09/20Sector Update: Financial Stocks Falling as Interest Rates Keep Trending Hi..
MT
09/20Wall Street falls as focus turns on Fed
RE
09/20Wall Street drops 1% with focus on Fed
RE
09/20Susquehanna Downgrades PayPal Holdings to Neutral From Positive, Adjusts Price Target t..
MT
More news
Analyst Recommendations on PAYPAL HOLDINGS, INC.
More recommendations
Financials (USD)
Sales 2022 27 877 M - -
Net income 2022 1 810 M - -
Net cash 2022 4 356 M - -
P/E ratio 2022 55,6x
Yield 2022 -
Capitalization 101 B 101 B -
EV / Sales 2022 3,45x
EV / Sales 2023 2,98x
Nbr of Employees 30 900
Free-Float 88,2%
Chart PAYPAL HOLDINGS, INC.
Duration : Period :
PayPal Holdings, Inc. Technical Analysis Chart | MarketScreener
Full-screen chart
Technical analysis trends PAYPAL HOLDINGS, INC.
Short TermMid-TermLong Term
TrendsBearishNeutralBearish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 46
Last Close Price 86,97 $
Average target price 120,35 $
Spread / Average Target 38,4%
EPS Revisions
Managers and Directors
Daniel H. Schulman President, Chief Executive Officer & Director
Gabrielle L. Rabinovitch CFO, Treasurer & SVP-Investor Relations
John J. Donahoe Chairman
Sripada Shivananda Chief Technology Officer & Executive VP
Jonathan Christodoro Independent Director
Sector and Competitors
1st jan.Capi. (M$)
PAYPAL HOLDINGS, INC.-53.88%100 579
VISA, INC.-15.11%380 582
MASTERCARD, INC.-18.30%283 709
PALO ALTO NETWORKS, INC.-12.94%48 344
VENUSTECH GROUP INC.-28.22%2 715
TOPSEC TECHNOLOGIES GROUP INC.-49.97%1 556